Tesla calls for tougher CAFE sanctions in the United States

CAFE penalties – those costs associated with automakers who fail to meet the company’s average fuel economy standards – are currently under review. The Biden administration and a U.S. appeals court are under pressure to act quickly to increase civil penalties for automakers who fail to meet fuel economy requirements. The stake could reach 1 billion dollars per year, according to Reuters, both for breaking the rules and for higher prices for credits used to comply with the rules.

All-electric vehicle maker Tesla sells credits to other automakers to help them meet government vehicle emissions requirements. Tesla argues that the value of these credits is diminished due to rule changes made by the administration of former President Donald Trump.

Transportation is the largest contributor to greenhouse gas emissions in the United States, overtaking the electric power industry for the first time in 2016. In 2019, transportation accounted for about 29% of total gas emissions. United States greenhouse effect.

CAFE standards regulate the distance vehicles must travel on a gallon of fuel and are tied to regulatory credits. In an effort to reduce carbon emissions, governments around the world have introduced incentives for automakers to develop electric vehicles or ultra-low carbon cars. Credits are given to car manufacturers who build and sell environmentally friendly vehicles.

Federal CAFE standards, in combination with greenhouse gas (GHG) standards, are the primary mechanisms by which the US federal government regulates GHG emissions from the transportation sector. Beyond the emission reduction targets, the standards also aim to improve the country’s energy security and improve the well-being of consumers.

The chronology of CAFE considerations

Corporate Average Fuel Economy standards were introduced in 1975 as part of the Energy Policy and Conservation Act, with the goal of reducing energy consumption by increasing the fuel economy of cars and light trucks.

The standards were raised during Barack Obama’s presidency, from a requirement of 24.1 miles per gallon in 2011 to a projected target of 54.5 miles per gallon by 2025.

In 2012, the federal government issued regulations requiring automakers to progressively meet increasingly stringent fuel economy and GHG standards for the 2017-2025 period. Separately, the state of California and 9 other states have required automakers, during the same period, to sell an increasing percentage of zero-emission vehicles.

Fiat Chrysler Automobiles paid almost $ 150 million for failing to meet the 2016 and 2017 requirements.

Research from 2020 indicates that stricter fuel economy standards increase the rate of technological improvements in new passenger cars.

In January 2021, the Trump administration delayed a 2016 regulation that more than doubled penalties for automakers failing to meet CAFE requirements. This decision was seen as having the potential to save the industry hundreds of millions of dollars or more. Instead, the Trump administration set the effective date for model year 2022. The announcement came just eight days before President-elect Joe Biden took office.

The U.S. Second Circuit Court of Appeals dismissed Tesla’s request in April for immediate action pending NHTSA review.

President Biden has called on the Environmental Protection Agency (EPA) and the Department of Transportation to propose new rules regarding the advancement of fuel efficiency standards in the automotive industry. It is an effort to change what a senior administration official called a “detrimental rollback” to the CAFE standards put in place by the Trump administration. “Corporate Average Fuel Economy Standards for Model Years 2024-2026 Passenger Cars and Light Trucks” was signed on August 5.

On August 10, NHTSA proposed to change the CAFE standards set in 2020 for passenger cars and light trucks manufactured in the 2024-2026 model years. The standards would increase rigorously at the rate of 8% per year instead of 1.5% per year previously set. This proposal also responded to President Biden’s directive in Executive Order 13990 to reconsider the CAFE standards finalized in 2020.

Stellantis said in August that the costs related to the potentially higher CAFE penalties could amount to around $ 609 million.

On August 18, the NHTSA issued a notice saying it may impose higher penalties for previous model years on automakers failing to meet fuel mileage requirements, but will consider the comments first. public.

On August 27, Tesla again asked the United States Second Circuit Court of Appeals to quickly reinstate tougher penalties.

Tesla had a virtual meeting on August 30 with officials from the National Highway Traffic Safety Administration (NHTSA).

NHTSA’s proposal is published in the Federal Register on September 3.

The state of CAFE standards today

“The uncertainty perpetuated by the slow pace of NHTSA rule-making is thus compounded by the likelihood of a new round of litigation,” Tesla wrote, adding that the uncertainty “could persist for several years.”

Now the NHTSA is considering reinstating Obama’s rule. The government memo said Tesla had suggested that NHTSA immediately withdraw Trump’s stock, saying it “produced continued uncertainty in investments and transactions across the industry, and any delay would continue to grow. have deleterious effects on the credit market until the problem is resolved “. He added that Tesla believes that “any delay will continue to have deleterious effects on the credit market.”

A group representing major automakers, including General Motors, Toyota Motor, Ford Motors and Volkswagen, has asked the court to dismiss Tesla’s claim. “That Tesla can enjoy greater certainty about the value of the CAFE credits it has accumulated is no reason to halt an ongoing administrative process,” the group wrote in a court filing.

The NHTSA has announced that it will hold a virtual public hearing on October 13, 2021 on its proposal for “Company Average Fuel Economy Standards for Passenger Cars and Light Trucks in Model Years 2024-2026”. This hearing also allows the public to provide oral comments regarding the draft Supplemental Environmental Impact Statement that accompanies the proposal. An additional session will be held on October 14, if necessary, to accommodate the number of people signing up to provide oral commentary. Each commentator will have 3 minutes to provide oral testimony.

Final thoughts on Tesla’s days in court

Research indicates that a fuel economy standard is at least 6 to 14 times less profitable than a price instrument (fuel tax) when it seeks an identical reduction in cumulative gasoline consumption. The premise is supported by the US government, suggesting that it is also possible to think that while consumers are sensitive to changes in gasoline prices, they are still short-sighted when it comes to vehicle choices that have advancements. technological. Progressive CAFE standards can serve as symbols that reflect and awaken consumers to cost and environmental savings.

Image courtesy of Tesla

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About Walter Bartholomew

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